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Evening markets: corn defies bears. But sugar succumbs

Corn continued to defy the bears.

But many other agricultural commodities could not, with the early resilience in New York raw sugar, for instance, giving way to, yet another, decline.

The benchmark March contract closed down 0.8% at 16.68 cents a pound, the lowest for a spot contract in nigh on two months, and an 11th successive negative finish.

'Trend is your friend'

"The markets continue their inexorable move lower, ignoring oversold technical indicators," Nick Penney, senior trader at Sucden Financial, said.

"In futures 'the trend is your friend' and we are currently in the middle of what a gambler would consider a 'run' of successive lower closes.

"The problem still lies in the fact that for the foreseeable future there is plentiful supply of white sugar and this is the type that people actually, eat and therefore it would take absorption of this supply first to engender further demand by refineries for the raw material."

White sugar for March actually ended down 0.5% at $450.00 a tonne a contract low - in London.

'Not sustainable'

Also in London, robusta coffee lost its resilience, tumbling 2.1% to $1,697 a tonne for January delivery, albeit after hitting a three month high of $1,779 a tonne.

There have been concerns that the bean's rally - attributed to a squeeze on the release of supplies from Vietnam, the top producing country, despite a record crop might prove temporary.

Commerzbank said earlier: "Even though robusta prices were able to gain by a further 4.5% yesterday, we are sticking with our belief that the increase will not prove sustainable.

"Although Vietnamese exporters are currently exercising restraint, which is shoring up prices and causing stocks on the Liffe exchange to decline, this is unlikely to remain the case for long given what looks like being a record harvest."

'A lot of concern'

But corn maintained its recovery from three-year lows, adding 1.1% to $4.36 a bushel in Chicago for March delivery, even in the face of continued bearish talk of Chinese cancellations of imports of the grain from the US.

Benson Quinn Commodities said: "Concern that China will reject additional US corn shipments continues to hang over the corn market."

"There is still a lot of concern in the corn market with the Chinese export situation and the rejected cargoes," Darrell Holaday at Country Futures said.

Five cargoes are believed to have been rejected so far for containing Syngenta's genetically modified MIR 162 trait which is not yet approved in China (and indeed has been waiting for clearance for two years).

"There is no sign of any agreement and it is projected that 10% of the US corn will carry the particular GMO trait," Mr Holaday said.

More than meets the eye?

In fact, there is some idea that the GMO issue is something of a red herring, produced to provide an excuse for cancellations in the face of over-purchasing.

"Trade is wondering if China's detection of unapproved US GMO corn is connected to their record corn harvest and the reduced offtake of compound feed and corn starch," Richard Feltes at Chicago broker RJ O'Brien said.

He quoted a comment from an "informed US observer" recently returned from China, who described the MIR 162 issue as "more complex than wire stories suggest". 

Ethanol output falls

Still, that was not all that corn bulls had to worry about.

Official data showed US ethanol production falling 14,000 barrels a day last week to 913,000 barrels a day, a fall deemed by Mr Holaday "surprising given the strong ethanol margins".

He added: "There was a very small increase in ethanol inventories" too, by 102,000 barrels to 15.12m barrels, "but they are certainly not burdensome".

'Price declines may be over'

Nonetheless, corn markets were settled by another strong performance by ethanol futures, which for January delivery soared 5.6% to $1,861 a gallon for January delivery, a four month closing high.

The jump also brought the contract its first finish above its 200-day moving average in more than a year.

And, also on the corn demand side, Mexico purchased 167,750 tonnes of US supplies, of which 132,600 tonnes was for the current marketing year.

Furthermore, "some analysts and traders are speculating that the recent price declines may be over in the short term as corn was able to change the trend yesterday and move through important moving averages," US Commodities said.

The Iowa-based broker said that it "remains supply bearish but will turn positive in the short run" on corn prices.

'Big production numbers'

However, wheat was not so lucky, in part through the release of short corn-long wheat spreads taken out earlier this year, and which has proven a profitable bet but may prove less of a winner after some stunning Canadian data.

Canada upgraded its wheat harvest by a mammoth 4.5m tonnes to 37.5m tonnes, setting a record by a distance, and far bigger than the 33.8m-tonne figure that investors were expecting.

The canola crop was also lifted by far more than analysts had expected (16.9m tonnes) to a record 18.0m tonnes.

"All the numbers were negative to world fundamentals. These are big production numbers out of Canada," Country Futures' Mr Holaday said.

'Rather spotty'

Factor in an upgrade on Tuesday by Australia to its wheat crop, and that means that the world has added some 2m tonnes of canola and more than 6m tonnes of wheat in the last 48 hours.

While wheat stood firm in the last session, it buckled on Wednesday, dropping 0.9% to $6.61 a bushel in Chicago for March delivery, coming close to surrendering its 10-day and 20-day moving averages again.

As an extra negative fears eased a bit about the cold snap threatening US winter wheat seedlings, particularly in Plains hard red winter wheat country.

"Bitter cold temperatures are threatening winter wheat areas. The cold temperatures are expected into next week moving east," US Commodities noted.

However, weather service MDA said that snow cover is increasing in the likes of Nebraska and Colorado, building protection from the cold, and meaning that "any winterkill should be rather spotty".

Kansas hard red winter wheat for March fell faster its Chicago soft red winter wheat peer, down 1.0% to $7.11 a bushel.

'Six soybean cargos have been cancelled'

The huge jump in Canada's canola estimate might have been expected to spread through the oilseeds complex and undermine soybeans too.

Certainly, Winnipeg canola for dropped 0.4% to Can$480.40 a tonne for January delivery, a seven week low for a spot contract.

Furthermore, soybeans face concerns that China's habit for cancelling cargos will spread to the oilseed too.

"Rumours circulate that up to six soybean cargos have been cancelled by China, with more possible," CHS Hedging said.

Benson Quinn Commodities said: "There is talk of China trying to washout purchases of US soybeans."

Not yet

At Allendale, Paul Georgy echoed such talk, saying that "traders have been shying away from buying nearby soybean futures as there is concern that China may cancel some cargoes".

However, he added that "our research suggests they could but probably not for several weeks", given that the rival South American crops are not yet in the bag.

"China will likely wait until they are more confident that South America has a bean crop," Mr Georgy said.

With US cash markets remaining firm, and soymeal ticking higher, that gave investors confidence to lift Chicago's January contract by 0.7% to $13.28 a bushel.

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